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Toyota Dealers Go Country

Auto maker’s plan is to carefully expand retail network into rural markets.

Toyota of Paris (TX) dealer Jerry Bawcum stretched his retail reach 50 miles (80 km) to open Toyota of Mt. Pleasant, a rural market that depends on work trucks.

Bawcum is part of a select dealer group that Toyota Motor Sales U.S.A. Inc. chose to launch its rural opportunity market (ROM) strategy.

Most of Toyota’s 1,200 dealers are in major markets. But the ROM initiative is based on the premise that consumers in outlying areas are underserved and the debut of the new-generation fullsize Tundra pickup truck presented opportunities for growth in select rural areas.

“While Toyota sales have increased exponentially over the last few years, dealer count has remained relatively stable, straining service capacity at most dealerships,” Bawcum says.

Toyota has opened five ROM dealerships since 2006. Several more are on tap.

The current ROM locations are Mt. Pleasant, Granbury and Madisonville, TX; Hilton Head, SC; and Johnston, NY.

Jerry Durant Toyota opened in Granbury, south of Fort Worth, in April. There are no goals or deadlines for the impending additions, Toyota says.

The ROMs are satellites for high-performing, single-point Toyota dealerships in slightly larger markets. Paris, for example, has a population of about 25,000 vs. Mt. Pleasant’s 13,000.

Generally, the parent store and ROMs are 30 miles (50 km) or more apart, the distance varying by market. The placement intends to put them in the path of competing U.S. brands where there are no other Toyota stores.

Customers know them as full-blown Toyota stores; no ROM labels or satellite signage are attached.

Toyota devised the ROM strategy to make it more convenient for customers to service their vehicles at its dealerships, but also for sales convenience, says Mike Bevan, Toyota Motor Sales U.S.A.’s corporate manager-retail market development.

“We realized we needed to reach out to the heartland where a lot of geography existed between dealers,” he says. “These are small markets where we can be represented along with Ford, General Motors or Chrysler dealers and give customers more convenient access to our products and services.”

So far, ROMs have been situated in towns where the market is maintaining but growing slower than the region average, he says.

The auto maker considered an approach that balances the traditional model of fewer dealers, higher sales and profits with an opportunity to capture vehicle sales in markets that Toyota traditionally did not serve, Bevan says. The ROM strategy evolved from there.

Toyota seeks 3%-4% increases a year in the slower growth small towns but is not in acceleration gear, as the ROM business model still is being tested, Bevan says.

Bawcum has invested more than $6 million in his old and new stores for the ROM project. Other dealers won’t say how much, but the figure is in the millions each. Those are big gulps for small-town stores.

Toyota of Paris and Mt. Pleasant are owned by the Bawcum family: Jerry (dealer), Glen (general manager) and Matt (general sales manager).

Dealers bear most of the financial investment in the ROM, they say. The Bawcums initially put about $3.5 million into Mt. Pleasant construction and another $2.5 million into bringing the Paris store up to Toyota requirements.

Toyota considers the stores as one entity with one dealer agreement, one dealer principal and one general manager. All recognition programs are awarded to the main store.

Bawcum’s Paris store won the Toyota President’s Award for the 18th consecutive year in 2008. That management model is being cloned in Mt. Pleasant.

At that store, open since December 2006, Tundra sales have tripled from 144 units in 2006 to 437 units in 2007 in the Paris/Mt. Pleasant area, validating Toyota’s rural initiative, Bawcum says.

Dealer Paul Atkinson opened Atkinson Toyota-Madisonville in rural Texas in July 2006, Toyota’s first official ROM store.

The Madisonville store is about 40 miles (64 km) from Atkinson’s flagship Bryan/College Station store, north of Houston. Madisonville (population 4,000) is comprised mostly of ranches, farms and small businesses.

The new ROM stores are significant because people might drive 50 miles (80 km) or so to buy a car but not to service it, dealers say. Now they also have the service option.

“About 40% of our business in Madisonville is conquest sales, which is much higher than our main dealership in Bryan,” Atkinson says.

He adds that about 48% of his total new business in Madisonville was light trucks last year – mainly the Tundra and Tacoma – compared with 29% in Bryan.

“The No.1 customer want today is to be respectful of their time,” Atkinson says. “That means cutting drive times for sales and service.”

He is able to consolidate expenses for Bryan and Madisonville. Now, both fixed operations, sales, finance functions and resources such as phone systems can be shared, he says.

Overall, Atkinson is pleased with the project. “I wouldn’t’ change a thing. It’s had a good impact on the community, Toyota and the dealer. It’s a win-win for all.”

Mission accomplished? Not exactly. Challenges remain.

Jerry Bawcum says one challenge of a second location, in cases where the first was already market-dominant, is potential “cannibalization from the new dealership.”

Because Mt. Pleasant is new and more convenient for many customers previously served at the Paris facility, Bawcum saw a decline in Paris sales during 2007. But combined sales were nearly 1,000 more in 2007 than Paris, alone, sold in 2006, he says.

Investment is also an issue. “It’s really a long-term investment. I don’t expect to recoup investment for about five years,” Bawcum says.

Toyota is still testing the ROM strategy and its potential, says Bevan.

“This is a business model that is different than previous rural plans.

“The domestics had a lot of small-town dealerships in place and are rethinking the strategy with some recent consolidation efforts,” he says. “We want to extend our current footprint in the right place with the right opportunities.”

Domestics are not expanding their rural markets, just slicing the pie differently.

For example, Chrysler LCC is encouraging smaller dealers to relocate to busier freeway locations. That relocation activity has been going on since 2001.

“In the past six years or so we’ve been relocating rurals to freeways where the Wal-Marts and traffic are,” says Jim Dimond, Chrysler’s national dealer placement manager. “It’s worked great; profits and sales are up for these dealers.”

Of 3,515 Chrysler Jeep and Dodge dealers in the U.S. , slightly less than half are rural small dealers.

“There is no plan to reduce these dealers. We want to help them maintain and defend their positions,” Dimond says. “Our plan is to maintain the smaller dealers. We want stabilization in the rural markets we are engaged in.”

Toyota is a relatively new entrant to the U.S. market, compared with mature domestic auto makers, he says. GM is 100 years old this year, Ford 105 and Chrysler 83.

“The first point of entry for an OEM is larger-volume dealers, and the last is the rural market, where Toyota is going now,” Dimond says.

Dealer Dan Hall at Pinckney (MI) Chrysler Dodge Jeep has no plans to move his small-town store to a freeway location as Chrysler suggests.

The numbers are on his side. He sold 1,870 new and used vehicles in 2007, comparable with larger metro stores. He also won the Chrysler Dealer of the Year award from the Great Lakes Business Center as the brand’s top-selling store in Michigan, Indiana, Ohio and Kentucky.

“I sell 1,370 new vehicles, and that goes against the concept of location,” he says. “The average smaller dealer sells about 200 cars a year.”

Hall has operated Chrysler dealerships for 25 years and calls himself a rural dealer, near the Ann Arbor, MI, fringes. He says he will look at area demographics in the decade and may build a new showroom as current capacity becomes strained.

Still, Hall commends the new Chrysler organization as top notch.

“It’s an extraordinary new regime,” he says of CEO Robert Nardelli and his leadership team, including co-presidents Jim Press and Tom LaSorda. “Everything they’ve promised they are holding steadfast to. That’s refreshing. It’s huge for us.”

Key Asian rival brands Honda and Hyundai are not rushing to develop more rural markets. They say they are happy with their existing dealer networks.

American Honda Motor Co. Inc. says it is focused on maintaining the current dealer network and adding open points only as needed.

“While we understand and value buyers in rural markets, we have no plans at this time to expand our dealer network beyond its current level,” American Honda spokesman Chuck Schifsky says.

“We feel that the 1,026 Honda dealers in the U. S. do a good job of connecting buyers with the vehicles they seek.”

TAGS: Dealers Retail
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